For colleges and universities navigating an increasingly challenging financial landscape, the ability to balance revenue generation and spending is more critical than ever. As enrollment patterns shift and costs continue to rise, institutions must diversify revenue streams and manage expenditures strategically to adapt and ensure long-term financial stability.
rpk GROUP’s latest report, The Financial Sustainability of Higher Education: Bright Spots & Challenges 2012 to 2022, takes a deep dive into two key financial trends: the increasing diversification of revenue and shifts in how institutions are choosing to allocate resources.
A Move Toward Long-Term Revenue Diversification?
Higher education is often portrayed as being chronically underfunded. While some colleges and universities are clearly facing financial challenges, total higher education revenues remained steady or rose between FY12 and FY22. Rising revenues were commonplace even in those areas where enrollment was declining, leading to widespread growth in total revenues per student.
At a more detailed level, the revenue mix at institutions continued to change during this decade. While tuition and fee revenues still play a critical role in funding institutions, net tuition and fees declined as a percentage of total revenue. Specifically, the report shows:
- Net tuition and fee revenue is shrinking across both public and private institutions, continuing a trend that started before the pandemic. By 2022, tuition accounted for a smaller percentage of total revenue than it did five years earlier.
- Federal and state funding helped fill the gap during COVID-19, particularly at public institutions, but those federal pandemic funds have expired. Public institutions also benefited from increased state and local appropriations, though long-term stability remains uncertain because states’ financial health is directly impacted by broader economic cycles.
- Private institutions remain highly tuition dependent. Unlike their public counterparts, private institutions do not receive significant state funding, making tuition dependency a bigger challenge, though some have offset losses with increased private gifts and other alternative funding sources.
For institutions that have relied largely on tuition and fees to sustain operations, these shifts present a challenge—and an opportunity. Given continued demographic changes and impacts on enrollment, the data suggests that increased revenue diversification will be essential for financial sustainability. Institutions that build alternative revenue streams, whether through private fundraising, public/private partnerships, or innovative programing will be better positioned for the future.
Changing Expense Patterns and the Need to Understand ROI
Even with declining enrollments, higher education costs have been rising for years. Although institutions temporarily reduced spending during the early pandemic years, expenses have since rebounded. The report highlights:
- Spending per student increased, particularly at public institutions, with the biggest jumps occurring after an initial pandemic-era dip.
- Institutions are prioritizing student support, directing more resources toward services that improve retention and success. This shift could boost the bottom line, as it’s more cost effective for institutions to keep the students they have than recruit to replace them.
- Instructional spending no longer consumes the majority of resources. While instruction remains a key expenditure, non-instructional costs—such as administration, research, and student services—now account for a growing share of institutional budgets.
The challenge for institutions is balancing these expenses while maintaining quality education and student support. Strategic financial planning, cost efficiency measures, and a deep understanding of return on investment will be necessary to navigate the financial realities ahead.
What Comes Next?
As higher education leaders make strategic decisions for the future, they must take proactive steps to ensure long-term financial sustainability. Institutions that thrive in this new financial era will be those that:
- Move to limit tuition dependency, exploring new and innovative revenue sources.
- Use data to drive financial decision-making, ensuring resources are allocated where they have the greatest impact.
- Align academic offerings with market demand, ensuring long-term viability.
- Identify operational efficiencies to balance costs while maintaining quality.
Higher education’s financial landscape is evolving, and institutions that proactively adapt their revenue strategies and spending priorities will be better positioned for long-term success. Financial sustainability will depend on innovative approaches to balancing revenue generation with responsible spending.
Want to dive deeper? Download the full rpk GROUP report here. And register for our upcoming webinar on Thursday, April 3rd at 1pm ET (register here).
During the webinar, rpk’s Rick Staisloff and Donna Desrochers will share key findings from the report. Later, they will engage in conversation with industry leaders, Terry Brown, Vice President for Academic Innovation and Transformation at American Association of State Colleges and Universities, and Ed Smith-Lewis, Senior Vice President, Strategic Partnerships and ICB at United Negro College Fund, on the financial sustainability of higher education and the impact on institutions.
